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Interim IRS Guidance Published on Student Loan Matching Payments

21 Aug 2024 8:40 AM | Bill Brewer (Administrator)

The program, created in SECURE 2.0, addresses student loans, which are considered a significant impediment to retirement savings.

Reported by Amy Resnick

The Internal Revenue Service published guidance Monday to assist plan sponsors providing or planning to provide matching contributions based on employees’ qualified student loan payments.

The IRS published Notice 2024-63, which uses a question and answer format, to illustrate the rules for employers with 401(k), 403(b) and governmental 457(b) plans to provide matching contributions based on qualified student loan payments, abbreviated as QSLP, rather than based only on elective contributions to retirement plans. Student loan defined contribution plan matching was permitted under the SECURE 2.0 Act of 2022.

Student loan repayment is frequently identified as one of the largest causes of financial stress and impediments to retirement savings among U.S. workers.

The notice also separately outlines QSLP rules for SIMPLE IRA plans.

The IRS is taking public comments on the notice, which applies to plan years beginning after Dec. 31, 2024. The comment period runs for 60 days after the notice is published in the Federal Register.

The ERISA Industry Committee, representing large employers in their capacity as benefit plan sponsors, supported the IRS’ action.

“ERIC’s member companies are committed to the financial wellbeing of their employees, including those with outstanding student loans,” said Andy Banducci, ERIC’s senior vice president for retirement and compensation policy, in a statement. “That is why we lobbied Congress to enact a tax law change allowing employers to make retirement plan matching contributions on account of workers’ qualified student loan payments. We applaud the IRS for issuing interim guidance implementing this change and look forward to providing technical comments to IRS in the coming weeks.”

The regulator also announced plans to issue proposed regulations providing further guidance on the QSLP benefit, stating that plan sponsors may rely on the notice until the proposed regulations are issued.

The guidance makes clear that plans cannot include provisions limiting QSLP matching to certain qualified education loans and that “all employees … eligible to receive matching contributions on account of elective deferrals must be eligible to receive matching contributions on account of ‘qualified student loan payments.’”

It also states that plans have to offer uniform treatment of elective deferral matches and QSLP matches.

“A plan with a QSLP match feature may not include provisions that exclude employees from receiving QSLP matches if those employees are eligible to receive elective deferral matches, and a plan with a QSLP match feature may not include provisions that exclude employees from receiving elective deferral matches if those employees are eligible to receive QSLP matches,”  the IRS wrote.

Overall, the notice addresses plan administration issues raised by Section 110 of SECURE 2.0, including:

  • Only an employee’s qualified education loan payments that were made during a plan year are eligible to be counted for purposes of the employee’s QSLP match for that plan year;
  • A qualified education loan payment is a QSLP only if the certification requirement is satisfied with respect to that payment. A plan may require a separate certification for each qualified education loan payment intended to qualify as a QSLP or permit an annual certification that applies for all qualified education loan payments intended to qualify as QSLPs for a year; and
  • To certify a QSLP, the plan or its third-party service provider much receive the amount of the loan payment made, the date of the loan payment, that the payment was made by the employee, that the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse or the employee’s dependent, and that the employee incurred the loan.

The notice also offers examples of administrative procedures and optional Actual Deferral Percentage testing.

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Source: PLANADVISER

https://www.planadviser.com/interim-irs-guidance-published-student-loan-matching-payments/

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